Portugal has confirmed that defined contribution(DC) occupational pension schemes will receive a boost through the re-introduction of tax incentives on employee contributions next year.
A fiscal incentive for second pillar schemes of up to 25% of the total employee contribution up to a maximum of €500 was scrapped at the end of 2004. Fiscal strain is a major issue in Portugal at present with the budget deficit at 6.2% – more than double the 3% limit required for membership of the euro.
However, there is another issue weighing on government finances. “There isn’t enough to fund the state pension system,” Martim Guedes, portfolio manager at BPI Asset Management in Lisbon, says. “So the government will reintroduce the fiscal stimulus to increase the savings rate. This will be a great boost for the industry. The stimulus will be introduced next year, according to a recent announcement from the finance minister.”
The new stimulus is less generous than the one it replaces, with a tax allowance of 20% of the total employee contribution, up to a maximum of €400 per year for employees up to the age of 35, a maximum of €350 for those aged between 35 and 50 and up to €300 for those aged over 50.
João Pina Pereira, head of private and institutional clients at ESAF, the fund management unit of Banco Espirito Santo in Lisbon, sounded hopeful: “Second pillar pension assets under management could increase by 25% if there was a proper incentive.”
APFIPP, the Portuguese Association of Investment Funds, Pension Funds and Asset Managers has lobbied for the reintroduction of the fiscal stimulus.